09 May 2013

Chairperson: Mr M Johnson (ANC)

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Meeting Summary

The Department of Agriculture, Fisheries and Forestry had commissioned KPMG to conduct a forensic investigation into Ncera Farms (Pty) Ltd, a State-owned entity under the control of the Department. The Department transferred approximately R3 million per annum to Ncera Farms. The investigation was concluded and a report on the findings was submitted to the Department in 2010. The Committee had undertaken three oversight visits to the farms since becoming aware of the unsatisfactory situation. The Committee had rejected the 2012/13 annual performance plan and budget of Ncera Farms and had requested that copies of the report on the forensic investigation was made available to the Committee.

The Director: Employee Relations of the Department of Agriculture, Fisheries and Forestry briefed the Committee on the report on the forensic investigation into Ncera Farms (Pty) Ltd. The briefing outlined the matters KPMG was requested to investigate and summarised the findings contained in the report.

The findings concerned incidents of non-compliance with the Public Finance Management Act and Treasury Regulations; the failure to appoint a Board of Directors and a properly constituted Audit Committee; two beneficiaries were found to be State employees; lease agreements with beneficiaries were not signed and the permission to occupy contracts had expired in 2009; no lease payments were made by the beneficiaries; the majority of farms were unoccupied and no farming activities had taken place on the farms after May 2009; illegal settlers were occupying the land; there were irregularities concerning the establishment of farm boundaries and the sale of tractors; the viability of the farms was compromised by a lack of water, unsuitable ground for commercial farming and a lack of infrastructure; the supply-chain management processes were flawed; proper tender specifications were not issued; the tender process was flawed; junior officials had authorised payments to suppliers; no financial control measures were in place; site visits to ascertain progress and the satisfactory completion of projects before payment was approved were not made; the services of the Department’s engineering unit were not utilised; equipment installed was not formally handed over to beneficiaries, was inadequately secured and was subsequently stolen; the work completed by contractors was not adequately monitored; contractors were paid in full before the work was completed; the Department did not review the application of the funds transferred to Ncera on a regular basis and reconciliations were not made. The investigators found that the majority of senior officials in the Land Settlement Directorate of the Department were from the Limpopo Province and the fact that contracts were awarded exclusively to suppliers in Limpopo was an indication of nepotism or cronyism.

A number of officials employed by the Department of Agriculture, Fisheries and Forestry, the Department of Rural Development and Land Reform and the provincial authority were implicated in wrongdoing and were named in the report. The Director: Employee relations advised that the disciplinary process against the implicated officials had commenced. The officials concerned had not been suspended.

The Director was unable to respond to questions from Members regarding the current situation on the farms, what remedial action had been taken by the Department and what the reasons were for the delay in acting on the report.

The Committee would be briefed on the 2013/14 annual performance plan and budget of Ncera Farms on Tuesday, 14 May 2013. A meeting with all the stakeholders would be held on Friday, 17 May 2013. The Committee had concluded that Ncera Farms (Pty) Ltd was a failure and the closure of the entity was a foregone conclusion. Approval of the 2013/14 budget would be limited to covering staff costs while the company was being closed down. The Department would be requested to compile a list of the assets and to provide input on the future of the entity and the stakeholders.

Meeting report

Report on the factual findings regarding the 2010 forensic investigation into Ncera Farms (Pty) Ltd
Copies of the report issued in 2010 were provided to Members of the Committee only.

The Chairperson said that the Committee had insisted on receiving the report on the forensic investigation into Ncera Farms before the strategic plan and budget for the previous year could be accepted. Ncera Farms (Pty) Ltd was a State-owned entity. The content of the report would have had a bearing on the plans and it was unlikely that the budget would have been approved by the Committee.

The strategic plans and budget for the 2013/14 financial year was scheduled to be presented to the Committee on Tuesday, 14 May 2013. The Committee had to make a decision on how to proceed with the matter.

The Committee had undertaken oversight visits to Ncera Farms. The report on the oversight visits included recommendations. One of the recommendations was for the Committee to meet with the stakeholders.

The Committee had originally intended to hold the briefing on the report on the forensic investigation in camera. The matter had attracted much interest from the media and it was decided to open the proceedings to the public. The Chairperson requested media representatives present at the proceedings to respect the rule of law. The various officials named and implicated in the report were innocent until proven guilty.

Briefing by the Department of Agriculture, Forestry and Fisheries (DAFF) on the report on the forensic investigation into Ncera Farms (Pty) Ltd
Ms Mmapitso Mashele, Director: Employee Relations, DAFF presented the briefing to the Committee (see attached document. She informed the Committee that certain officials of the Department were implicated in the matter and could not attend the briefing.

The Department had commissioned KPMG to conduct forensic investigations into the procurement processes followed in the awarding of contracts; the processes followed for the approval of payments to contractors; corporate governance issues concerning the Board of Directors and the Audit Committee; possible conflict of interest involving officials of the Department; the appointment of the Training manager; the process followed regarding the selection of farm occupants and the allocation of farms to beneficiaries; the apportionment of the land allocated to the farmers; compliance with procurement processes involving suppliers of the Land Settlement Directorate; the suitability of the entities contracted to supply and install water tanks and fencing and the outsourcing arrangements; the subsequent re-allocation of the farms to other farmers; the establishment of the farm boundaries; the financial management processes (including accountability for and the reconciliation of receipts and payments) and the record-keeping of sold assets and livestock.

A summary of the findings of the investigation by KPMG was provided. It was established that:
The Audit Committee comprised a single member, who was employed by DAFF. Public Finance Management Act (PFMA) requirements and Treasury Regulations were not complied with.
A Board of Directors to oversee operations was not appointed.
Two beneficiaries were employed by the State, in contravention of the applicable criteria.
Beneficiaries were given permission to occupy the land pending the finalisation of lease agreement contracts. The permission to occupy contracts was for the period May 2007 to May 2009. The permission to occupy contracts had expired but the lease agreement contracts were never concluded. The beneficiaries therefore had no contractual right to occupy the land.
No lease payments were received from beneficiaries as a result of the failure to conclude the lease agreements between the Department and the beneficiaries
The majority of the farms were unoccupied. Where farms were occupied, no farming activities took place after the expiry of the permission to occupy contracts.
Illegal settlers occupied the land and beneficiaries were prevented from commencing farming activities and keeping livestock.
The purpose for which beneficiaries showed interest in the Public Information Tender was not aligned with the actual plans of the beneficiaries for the farms.
The size of the parcels of land earmarked for allocation to beneficiaries differed.
The valuation process was flawed as the farm boundaries were not properly established.
The viability of the farms for commercial farming was affected by the lack of water, suitability of the ground and the lack of infrastructure.
The supply-chain management processes were flawed.
Proper specifications were not issued. The requirement for the supplier to physically inspect the site prior to submitting a tender or quotation was not addressed.
Junior officials had authorised payments to suppliers.
There were no financial control measures and place and receipts and payments were not reconciled.
Site visits were not made to inspect finished projects before payment was processed by the finance department.
The specifications for the fencing tenders were unclear. As a result, quotations were submitted for different lengths and heights of fencing and were not comparable.
The services of the Engineering Services Directorate of DAFF for the installation of boreholes and fencing were not used. Utilisation of the internal services of the Department would have prevented sub-standard work by contractors and wasteful expenditure.
The safekeeping of equipment after installation was inadequate. The equipment was not formally handed over to beneficiaries. As a result, borehole equipment and water tanks were stolen.
Officials of the Land Settlement Directorate did not adequately monitor the work completed by contractors.
Ncera Farms were allocated an annual budget. The Land Settlement Directorate did not perform formal monthly reviews or reconciliations.
The total amount paid to suppliers exceeded R2 million.
Suppliers were paid in full despite the fact that work was not completed.
The farmers were not informed of the sale of tractors.
The tractors were sold for amounts in excess of the initial valuation by the State Valuer.
Contracts were awarded to suppliers based in the Limpopo Province. The majority of senior officials in the Land Settlement Directorate of DAFF were from Limpopo, which appeared to be indicative of nepotism or cronyism.

The Department was in the process of initiating disciplinary action against the officials implicated in the report and the employees who had failed to perform their duties.

Discussion
The Chairperson asked what the current situation was on the farms. He asked how many State-owned farms were dealt with by DAFF.

Ms Mashele was unable to respond as she did not have the information to hand. She was aware that the Committee had conducted oversight visits to Ncera Farms.

Mr B Bhanga (COPE) noted that the KPMG report was issued in 2010. He noted the finding regarding the non-compliance to the PFMA and Treasury Regulations and assumed that the failure to comply had continued after 2010. He asked what action had been taken by DAFF to ensure that the applicable legislation was being complied with. He asked why it had taken longer than two years for the Department to act against the implicated officials. He asked what action had been taken against the officials from the Department of Rural Development and Land Affairs who were also implicated in the report.

Ms R Nyalungu (ANC) asked why the allocation of funding to Ncera Farms differed from the allocation made to other State-owned farms. She asked what action had been taken against the two beneficiaries who were employed by the State.

Mr L Gaehler UDM) asked what the current situation was concerning the Board of Directors, the Audit Committee, the lease agreements and the illegal settlers on the farms.

Mr Bhangha asked what the purpose was of a new study to be undertaken by the Department and how long it would take to complete the study. In his opinion, the KPMG report issued in 2010 was clear and comprehensive. He asked why the Department could not decide on the future of Ncera Farms on the basis of the KPMG report.

Ms N Twala (ANC) thanked the Department for the briefing on the report, which had been awaited by the Committee for a long time.

Ms Mashele advised that a new study into the matter was not planned by the Department.

The Chairperson said that it would be necessary to deal with past events, the current situation and the future direction of Ncera Farms. The Committee only had information on what had occurred in the past and there were no officials from DAFF present at the proceedings to provide input on the current situation and on the plans regarding the future of the entity. He understood that certain officials involved in the matter had refused to appear before the Committee. The Committee would like to know what process was followed in the allocation of the farms to the beneficiaries. Members had heard complaints that beneficiaries who had occupied the land for a long time had been overlooked in favour of people from other areas. The Audit Committee consisted of a single member, who was also a DAFF official. The Committee had established that State officials had benefited from Ncera Farms.

Mr Gaehler observed that Ms Mashele did not have the necessary knowledge of the issue to provide responses to the questions asked by the Committee. He suggested that the Committee accepted the report.

Mr Bhanga agreed with Mr Gaehler. He understood that the disciplinary action process was under way but the officials concerned had not yet been suspended. There was no reason why the officials could not be summoned to appear before the Committee. The briefing should have been attended by all the officials involved in the matter as well as the Director-General of the Department.

The Chairperson advised that the Committee would be dealing with the 2013/14 strategic plan of Ncere Farms on Tuesday, 14 May 2012.

Ms Mashele asked the Committee to avoid using a ‘blanket approach’. The Committee was in possession of the KPMG report and the Department should be allowed to proceed with the matter. She was able to provide information on the current situation regarding the disciplinary action being taken. The report was commissioned from an external service provider and it was difficult to persuade employees of KPMG to appear before the disciplinary hearings of the implicated officials. The Department needed to be sure that it had a solid case, concrete evidence needed to be provided and the evidence had to be verified before an official could be suspended. She assured the Committee that the Department was taking disciplinary action against the implicated officials. There was no restriction on the time elapsed since an incident of misconduct had occurred and officials could be prosecuted for transgressions long after the incident took place. It was clear that there had been incidents of corruption. The Department needed to ascertain that the beneficiaries had received the land and equipment that were agreed to. A turnaround strategy for Ncera Farms needed to be developed in order to determine the future direction of the entity.

The Chairperson advised that the Committee would decide on the future of Ncera Farms. The Department had the opportunity to resolve the situation since 2010. The DAFF officials who were implicated in wrongdoing remained in the employ of the Department. Other implicated officials were employed by the Department of Rural Development and Land Affairs and the provincial authorities.

Ms Mashele confirmed that the officials concerned were still employed by DAFF. Not all the officials implicated in the matter were named in the KPMG report.

Mr Bhanga asked the Chairperson to provide guidance to the Members of the Committee on the way forward. The current situation was understood and it was clear that the Department was taking remedial action. The Committee needed to decide on the future of Ncera Farms as a matter of urgency. Parliament had the authority to summon senior officials to appear before it and to hold the responsible officials accountable. It was not acceptable that senior officials did not appear before the Committee to explain what had taken place at Ncera Farms. It was necessary for the Committee to establish exactly what had occurred. Any new study would be a waste of time and money. The KPMG report was perfectly clear and the Department had more than two years to address the matter. The Committee needed to give decisive guidance to DAFF.

The Chairperson thanked Ms Mashele for the briefing, which provided a concise summary of the report. It would be necessary to call all the officials involved in the matter to appear before the Committee. The report included clear recommendations. The Department needed to ensure that the necessary legal action was taken. The Committee needed to decide on the acceptance of the annual performance plan and budget of Ncera Farms Acceptance of the plan and budget would be in accordance with the Committee’s mandate. It must be clearly understood that the accepted plan and budget would reflect the way forward for the entity. It would be necessary to determine what the implications were if the Committee decided to close down Ncera Farms. The Committee would require periodic reports on the progress made by DAFF. One of the recommendations had been that the Committee met with the stakeholders in Ncera Farms. The meeting was scheduled for Friday, 17 May 2013. All parties involved needed to attend the meeting. A decision on what future action would be taken and the reporting requirements would be made after the meeting.

Mr Gaehler asked what action would be taken by the Committee concerning certain farms in the Eastern Cape Province.

Mr Bhanga recalled that officials from the Eastern Cape Province were present during the Committee’s oversight visits to Ncera Farms. He suggested these officials attended the stakeholder briefing. It was necessary to establish accountability.

The Chairperson replied that the Committee would deal with the Ncera Farms matter in the first instance and consider all the options for the future of the entity. He understood that there was currently no farming activity on the farms. The plans to establish a training centre came to nothing. The farmers were not receiving any assistance from the Department. Illegal settlers prevented the farmers from keeping livestock. Equipment had been stolen or was sold. He asked DAFF to prepare a briefing to the Committee on the current situation and the way forward for the meeting to be held on 17 May 2013.

Ms Mashele asked if the Committee would not be in a better position to make a decision if the meeting with the stakeholders were held before the briefing on the annual performance plan and budget.

The Chairperson responded that the Committee had visited the Ncera Farms on three occasions and had already concluded that the venture was a failure. Between R3 million and R5 million per annum was allocated to Ncera. He wondered why DAFF insisted on continuing with Ncera. The question was what experience had been gained and if the model used for the farms under the control of DAFF was sound.

Mr Bhanga understood that the Committee had made a promise to meet with the stakeholders. It was important that the stakeholders understood the implications of the Committee’s decision. A management decision to close down Ncera Farms could be taken but the impact on the people living on the farms needed to be taken into consideration. The Committee was required to finalise the annual performance plan and budget by a specified date and there was little time available before the deadline. He suggested that the Committee proceeded with the decision on the approach that would be followed. The Department could be informed in writing what was expected from it. There were other State-owned farms in trouble.

The Chairperson confirmed that the briefing on the annual performance plan and budget would be held on Tuesday, 14 May 2013. The meeting with the stakeholders would be held on Friday, 17 May 2013, after which the Committee would decide on the approach to be followed. The officials from DAFF were excused from attending the remainder of the proceedings.

The Chairperson reminded Members that the Committee report on the annual performance plan and budget of the Department had to be finalised and adopted by 21 May 2013. The budget vote would be debated in the House on 29 May 2013.

Ms Twala asked why the Committee needed to approve the budget before meeting with the stakeholders. She recalled that the Committee had not approved the budget for the previous year. She felt that not enough notice was given to the stakeholders to attend the meeting on 17 May 2013.

Mr Gaehler explained that the process of preparing a budget was time-consuming. The meeting on the 17th May would focus on the action that needed to be taken in future.

Mr Bhanga observed that the Committee needed to follow due process when closing down an entity. Provision needed to be made to meet operational costs in the interim. The Committee could consider deferring the formal approval of the budget to after the Friday meeting. It was clear that there was no chance that Ncera Farms could be turned around. It was necessary for the Committee to indicate clearly that the entity would be closed down and to ask the stakeholders to provide input on what action needed to be taken. There were no valid legal agreements with the beneficiaries in place. The finding that the PFMA was not complied with rendered the action that was taken illegal.

The Chairperson mentioned the names of persons he thought would be available to attend the meeting. The budget for 2013/14 included provision for goods and services and expenditure related to a turnaround strategy that the Committee had serious reservations about. The plans included a number of projects (e.g. fencing and raising goats) but there were currently no economic or farming activities on the farms and none of the programmes were being implemented. The Ncera Farms budget was included in the DAFF budget as the Department transferred funds to the entity. The Committee might have to accept the budget, subject to certain provisos. Provision needed to be made for the remuneration of personnel until such time the entity was formally closed down. Decisions needed to be made about what would happen to the farms and the land.

The Content Adviser to the Committee explained that the farms were allocated under the Land Distribution Programme and should not have been linked to the entity. Ncera Farms (Pty) Ltd occupied only one hectare of land on which office buildings were constructed. Unlike other State-owned entities, Ncera Farms was not established by an Act of Parliament and closing down the entity should be a straightforward matter. The Committee had rejected the plans and budget for the previous year and there was currently no activity on the farms.

The Chairperson said that the Committee would accept the budget, with the proviso that only staff expenditure for the period the entity was in the process of being closed down was approved.

Mr Gaehler suggested that the Committee instructed DAFF to complete an audit of the assets. A list of the assets had to be submitted to the Committee by 17 May 2013. He expected that the remaining assets would be looted as soon as it became known that the entity would be closed down.

Mr Bhanga suggested that it was made clear to the responsible officials that they would be held accountable for State assets.

The Chairperson remarked that there were already illegal settlers on the land. It was important that proper communication took place with all concerned.